Rental Income and Medicare IRMAA: What Landlords Need to Know in 2026

Your Schedule E rental income flows directly into AGI — and into the IRMAA MAGI calculation that sets your Medicare Part B and Part D surcharges. The passive losses that reduce your taxable income in some years offer no relief. And if you sell a rental property, the gain hits your Medicare premiums two years later. Here's what retirees with rental income need to understand.

How rental income flows into IRMAA MAGI

When you own rental property, your net income or loss from each property appears on Schedule E, which totals to Form 1040, Line 5 (rent and royalties). That number feeds directly into AGI — the starting point for IRMAA MAGI.

A retiree with three rental properties netting $60,000 after operating expenses and depreciation has $60,000 of rental income in their AGI — regardless of how much cash actually landed in their bank account, and regardless of mortgage paydown or principal payments.

Add Social Security (85% taxable for most retirees with meaningful investment income), IRA distributions, or pension income on top, and many landlords find themselves in IRMAA territory without anticipating it.

Example — single retiree, age 68:

Increase the RMD to $35,000 and MAGI becomes $113,800 — into Tier 1, triggering $1,148/year in surcharges. The rental income doesn't have to be the problem on its own; it's the stacking that bites.

The passive loss trap: why losses don't reduce IRMAA

Under the passive activity loss rules (IRC §469), rental real estate losses are passive losses that can only be deducted against passive income.² They cannot offset wages, Social Security, pension income, or IRA distributions — the income sources that typically drive retirees into IRMAA territory.

The special $25,000 allowance provides limited relief for active participants (landlords who materially participate in managing their properties): you can deduct up to $25,000 of rental losses against nonpassive income. But this allowance phases out at a rate of $0.50 for every dollar of AGI above $100,000, and disappears entirely at $150,000 AGI.² Most retirees who land in IRMAA territory have AGI above $150,000 — meaning the special allowance is worth $0.

Suspended passive losses accumulate and are released when you sell the property. At that point, they offset the gain — reducing the IRMAA spike in the sale year. That's a useful planning fact: large suspended losses going into a sale can significantly reduce the taxable gain and therefore the MAGI impact.

The exception: real estate professionals (750+ hours per year working in real estate, with rental activities as their primary business, and material participation in each property) can treat rental income as non-passive. Their losses can offset ordinary income, and their rental income is not subject to the Net Investment Income Tax (covered below). This status is difficult to qualify for during active retirement years and rare among passive landlords.

Depreciation: the current-year IRMAA lever

Depreciation deductions reduce your net rental income on Schedule E — which directly reduces MAGI. Residential rental property is depreciated over 27.5 years under MACRS; commercial property over 39 years. A property with a $350,000 depreciable basis generates approximately $12,700/year in depreciation deductions, reducing IRMAA MAGI by that same amount.

Strategies that increase depreciation in the near term:

• Cost segregation study: Reclassifies components (flooring, electrical, appliances, landscaping) into 5-, 7-, or 15-year property, allowing accelerated depreciation. Under OBBBA, 100% bonus depreciation was restored permanently for property placed in service after January 19, 2025 — meaning short-life components can be fully deducted in year one.³ This front-loads depreciation, reducing MAGI in the near term at the cost of smaller deductions in later years.
• Capital improvements: A new roof, HVAC, or kitchen renovation increases your depreciable basis and future deductions — but doesn't help the current year unless qualified for bonus depreciation.

The catch: every dollar of depreciation you claim today creates future recapture income when you sell. Accumulated §1250 depreciation is recaptured at ordinary income rates (up to 25%) — not at capital gains rates — and flows directly back into MAGI in the sale year.

Selling rental property: the IRMAA spike two years later

When you sell a rental property, the gain — including depreciation recapture — is recognized in the year of sale. That income flows into your MAGI for that year, and via the two-year look-back, into your Medicare premiums two years later.¹

A sale in 2024 sets your 2026 Medicare premiums. The gain doesn't spread out over multiple years automatically — all of it hits MAGI in the sale year unless you structure the sale differently (see strategies below).

Example — selling a property with accumulated depreciation:

The one-year difference from the sale: an additional $1,735 in Medicare surcharges for the single premium year tied to the sale. Both recapture and capital gain count toward MAGI — there is no exclusion for long-term rates or favorable tax treatment. The IRMAA calculation uses raw MAGI, not tax-adjusted income.

One important note: the SSA-44 life-changing event appeal is not available to reverse an IRMAA spike caused by an intentional property sale. The seven qualifying life-changing events include loss of income-producing property due to a natural disaster — not a voluntary sale. If the sale year is already in the past and your current-year income is much lower, the SSA-44 won't help unless a separate qualifying event (retirement, divorce, death of spouse) also occurred.⁴

NIIT stacking: the 3.8% on top of IRMAA

For retirees with MAGI above $200,000 (single) or $250,000 (married filing jointly), passive rental income is also subject to the Net Investment Income Tax (NIIT): 3.8% on the lesser of net investment income or excess MAGI above the threshold.⁵ These thresholds are not indexed for inflation.

The NIIT applies to net rental income, depreciation recapture, and capital gains from the property sale — all in the same year. On a $240,000 gain from a property sale, a single filer already above the $200K MAGI threshold pays $9,120 in NIIT (3.8% × $240,000) on top of ordinary income and capital gains taxes — and then faces elevated IRMAA premiums two years later.

The combined hit for a retiree selling rental property with MAGI already above $200K: NIIT in the sale year plus an IRMAA surcharge increase two years later. Both hit from the same event.

Five strategies to manage rental income IRMAA

1. 1031 exchange: the only complete IRMAA deferral

A like-kind exchange under §1031 defers all gain recognition — both the §1231 capital gain and the §1250 depreciation recapture — until the replacement property is eventually sold.⁶ There is no MAGI event in the exchange year, and therefore no IRMAA impact. This is the only strategy that eliminates the sale-year MAGI spike rather than reducing it.

The constraints: you must identify the replacement property within 45 days and close within 180 days. The replacement property must be of equal or greater value to fully defer the gain. If you eventually sell the replacement property without a subsequent 1031, all deferred gain — plus accumulated recapture on both properties — hits MAGI at once.

2. Installment sale: effective when future income is lower

An installment sale (IRC §453) spreads the gain recognition over the years in which you receive payments.⁷ This creates IRMAA exposure over multiple years rather than one, which is advantageous only in specific situations: when your regular income in future years will be significantly lower than the sale year, and when the spread payments can keep future-year total MAGI below or in a lower IRMAA tier than the lump-sum alternative.

If you're still working in the sale year (high income) but will retire the following year (lower income), spreading payments into post-retirement years may keep future-year MAGI below the IRMAA threshold entirely — a genuine saving. If your income will remain elevated in both the sale year and future years, the installment approach generally increases total IRMAA exposure by creating multiple elevated years rather than one.

Note: depreciation recapture is front-loaded in installment sales — it's recognized first before capital gain, regardless of how payments are structured. You can't defer the recapture component.

3. Maximize deductible expenses and depreciation before selling

Major repairs completed (not capitalized) before the sale reduce net income in the years they're incurred. Cost segregation studies, if not yet performed, can generate large catch-up depreciation deductions under the bonus depreciation rules — front-loading the reduction in MAGI in the years before sale, at the cost of increasing recapture at sale. The net IRMAA math depends on your tax situation and timing.

4. Qualified charitable distributions to offset ongoing rental income

If you're 70½ or older with any IRA balance, QCDs (up to $111,000 per person in 2026) reduce AGI dollar-for-dollar.⁸ Unlike a regular charitable deduction, a QCD never enters AGI — it satisfies your RMD without adding to MAGI. If rental income is pushing you into a higher IRMAA tier, QCDs can pull you back: a $25,000 QCD in place of a $25,000 cash RMD saves the IRMAA surcharge on that $25,000, potentially keeping you in a lower tier.

5. Roth conversion timing around rental income

If your rental income is predictable year to year, you can model exactly how much MAGI headroom remains before the next IRMAA tier. Roth conversions use that headroom to permanently reduce the IRA balance — every dollar converted now is a dollar that won't generate taxable RMDs or IRMAA MAGI later. Do the conversions in years where rental income is lower (off-season rental, major renovation year with higher expense deductions, or after selling a high-income property).

2026 IRMAA surcharge reference

2026 premiums are based on 2024 MAGI (two-year look-back):¹

Decision framework by situation

Sources

1. CMS: 2026 Medicare Parts A & B Premiums and Deductibles — Standard Part B premium $202.90/month; IRMAA surcharges by income tier based on 2024 MAGI. IRMAA MAGI = AGI plus tax-exempt interest. Verified November 2025.
2. IRS Publication 925: Passive Activity and At-Risk Rules (2025) — IRC §469 passive activity loss rules for rental real estate. Special $25,000 allowance for active participants: phases out $100K–$150K AGI (50% of excess over $100K), eliminated entirely at $150K+ AGI. Real estate professional exception (750+ hours). Suspended losses released on disposition.
3. IRS: 2026 Tax Inflation Adjustments (OBBBA Amendments) — OBBBA (One Big Beautiful Bill Act, July 2025) restored 100% bonus depreciation permanently for qualified property placed in service after January 19, 2025. Applies to 5-, 7-, and 15-year property components identified in cost segregation studies.
4. SSA Form SSA-44: Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event — Seven qualifying LCEs: marriage, divorce/annulment, death of spouse, work stoppage/reduction, loss of income-producing property due to disaster, employer settlement, pension stoppage. Voluntary property sale does not qualify as a LCE.
5. IRS Topic 559: Net Investment Income Tax — NIIT: 3.8% on lesser of net investment income or MAGI over $200,000 (single) / $250,000 (MFJ). Passive rental income and gains from rental property sale are included in net investment income. Thresholds not indexed for inflation.
6. IRS Publication 527: Residential Rental Property (2025) — §1031 like-kind exchanges for rental property: defers recognition of both §1231 capital gain and §1250 depreciation recapture. 45-day identification window, 180-day closing window. Applies to real property held for investment or business use.
7. IRS Publication 537: Installment Sales (2025) — Installment method under IRC §453 spreads gain recognition over payment years. Depreciation recapture (§1250 unrecaptured gain) is recognized in the year of sale regardless of payment schedule — recapture cannot be deferred through installment sale structure.
8. IRS Notice 2025-67: 2026 Retirement Plan Limits — QCD limit 2026: $111,000 per person (indexed annually under SECURE 2.0 § 307). Available at age 70½+. QCD satisfies RMD without entering AGI or IRMAA MAGI — unlike a regular charitable deduction, which reduces taxable income but not AGI.

Values verified as of May 2026. IRMAA brackets set annually by CMS. Passive loss, NIIT, and installment sale rules per IRS Publications 925, 559, and 537. Consult a licensed advisor for guidance specific to your situation.